HP tells shareholders now is not the time for M&A

Richard Stuart-Turner
Thursday, March 26, 2020

HP has told its shareholders that "it’s abundantly clear" that now is not the time to partake in M&A activity, in light of its pursual by Xerox.

HP said its focus must be on "ensuring that we remain strong and resilient throughout this crisis"
HP said its focus must be on "ensuring that we remain strong and resilient throughout this crisis"

In a letter signed by president and chief executive Enrique Lores and chairman Chip Bergh, HP's board told its shareholders the business is “committed to doing everything we can to support those in need and respond to the challenges at hand” during the coronavirus pandemic.

“Our primary responsibility in this difficult period is to focus on HP’s business and address the needs of our ecosystem of stakeholders around the world,” the letter stated.

“We are actively managing many challenges, including assuring the health and safety of our people, addressing supply chain disruptions, monitoring and addressing our customers’ liquidity needs and, more broadly, ensuring HP is well-positioned to support people working remotely.”

Speaking about Xerox's proposed takeover of HP, which Xerox postponed related activity to two weeks ago, albeit with its tender offer still moving forward, HP's letter added: “We are committed to protecting your investment in HP.

“Since Xerox launched its unsolicited exchange offer and nominated directors, the global social, economic and financial environments have changed radically.

“Despite this, Xerox continues to advance its tender offer and its proposed slate of directors in an effort to force a combination.

“It is important for shareholders to understand that, under these circumstances and consistent with our fiduciary duties, we believe that we should not divert valuable time, attention and resources to a dialogue with Xerox about its proposed transaction.

“Any complex, large-scale, highly leveraged transaction in the current economic environment could be disastrous for HP, its shareholders and our entire ecosystem. While we remain open-minded about M&A as a tool to add value for HP shareholders at the right time and on the right terms – it’s abundantly clear that now is not that time.”

HP added its focus must now be on “ensuring that we remain strong and resilient throughout this crisis while continuing to position the business for the opportunities ahead”.

“We have consistently expressed deep concerns about the irresponsible capital structure that is reflected in Xerox’s proposal.

“Their proposed structure would saddle HP with a level of debt that it could not support, potentially leaving the company without the cash needed to effectively run the business. We believe this would put the company at risk of being in financial distress immediately upon consummation of Xerox’s proposed transaction.

“On top of this, the highly leveraged capital structure Xerox wants to implement could threaten the stability of the entire HP ecosystem and the livelihoods of our employees, customers and partners.

“With regard to the cash portion of Xerox’s proposal, it is also important that HP shareholders understand that there would be six to 12 months of significant uncertainty before knowing whether the conditions are satisfied, and the transaction could be funded and closed.

“Even if Xerox is able to maintain its bridge commitments and raise additional equity financing, which is far from certain in the current climate, there are many conditions to its proposal that create uncertainty. These include regulatory approval across many countries, funding of the bridge commitments, new funding for the ongoing business, and Xerox’s securing approval of the transaction by its own shareholders.

“We remain firmly committed to creating value for our shareholders and the principles that we have articulated that drive value. This includes our focus on execution of our recently announced plans, achieving the cost savings we have announced, and returning capital to our investors while dealing with the unprecedented new circumstances in which we must now operate.”

HP's share price was down by 0.58% to $15.38 (£12.89) at the time of writing.


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